10 states try to block Sysco-US Foods deal

The attorneys general of 10 states and the District of Columbia have joined the Federal Trade Commission in asking a federal court for a temporary injunction to halt the merger of Sysco and US Foods, the restaurant industry’s two largest distributors.

The chief legal officers of several states participating in the action alleged in individual statements that the merger of Sysco and US Foods would stifle competition.

Tennessee Attorney General Herbert Slatery, for instance, said a combined Sysco-US Foods would control 81 percent of Memphis’ distribution market. Virginia Attorney General Mark Herring said the new distribution giant would have a handle on 62 percent of the foodservice supplies flowing into the communities of Roanoke, Blacksburg and Lexington.

Sysco, which announced its plan to buy US Foods and assume the companies debt in December of 2013, maintains that the deal would not stifle competition for restaurants’ supply business. "Those of us who work in this industry every day know it is fiercely competitive,” Sysco CEO Bill DeLaney said at the time the FTC announced its intention to block the $8.2-billion deal. “Customers of all types have access to food distribution services from a wide variety of companies and any number of channels. In fact, the overwhelming majority of restaurants and food operators choose their foodservice distributor locally, where they have choices among many excellent companies."

He has questioned the share-of-market figures that the FTC has cited as the basis for its opposition. “The FTC claims that Sysco and US Foods combined have a 75 percent market share in an ill-defined 'national broadline market,' ignoring the fact that the vast majority of 'national customers' use multiple regional or local distributors,” DeLaney said in a statement. “Additionally, the FTC claims the merger would harm competition in 32 local markets, ignoring the existence of myriad local suppliers, including broadline companies, specialty companies, cash-and-carry, and club stores with whom Sysco and US Foods compete on a daily basis."

Additionally, Sysco has said the FTC itself is conflicted on the merger, with opposition resting on a 3-to-2 vote by the regulatory agency’s five directors.

Joining Tennessee and Virginia in the request for an injunction were the attorney generals of California, Illinois, Iowa, Maryland, Minnesota, Nebraska, Ohio, Pennsylvania and the District of Columbia.

The participating attorney generals are a mixed group politically. The group includes Republicans as well as Democrats, conservatives as well as liberals. It was not clear how they came together to join the FTC in seeking the injunction.

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